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Corn+Soybean Digest

Raising the Blood Pressure of Your Agricultural Lender- Credit Denial 101

In this series of articles, we have discussed the basic financial issues that can increase your probability of being denied credit. Now, let’s turn to the personal side of farm family budgeting.

Excessive Family Living Costs – High or Low Maintenance
One of the major considerations in determining your acceptance for credit and interest rate is the lifestyle you lead. Concerning living habits, people can be classified into two categories: high or low maintenance.

The average farm family living costs run approximately $50,000 annually. High maintenance tends to be $75,000-plus and low maintenance runs under $35,000 annually. It is not only the family living withdraws that a lender will examine, but also that its consumption is within the means of income generation.

Large Credit Card Debts
A surefire sign of rejection by the lender is larger amounts of credit card debt, typically more than 15% of net income. The average household has over $9,000 of credit card debt, and people who are living beyond their means will often increase the amounts $2,000-3,000 annually.

A lender will check the spouse or significant other’s credit card balances, and in some cases even children. In one case, a desperate family ran a $15,000 credit card balance on a teenage child without the child even knowing about it.

Personal Liquidity
Personal liquidity is another factor to be evaluated. The average American only has 14 days of family living cash and liquidity in case of an emergency. This is down from 48 days in the 1980s. Many recommend 4 to 6 months, and if you are an individual with no disability or health insurance and/or volatile income, up to a year is recommended.

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at

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